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Building Industry Finance, Law and Insurance
News Release from: Bibby Financial Services | Subject: Sub contractors
Edited by the Buildingtalk Editorial
Team on 26 September 2006
Sub contractors need to work smart
Bibby Financial Services is warning sub contractors eager to benefit from the surge in work, not to get their fingers burnt when it comes to working with larger contractors.
With the latest figures from Construction Forecasting and Research showing that the construction industry is now worth £10 billion*, Bibby Financial Services is warning sub contractors eager to benefit from the surge in work, not to get their fingers burnt when it comes to working with larger contractors Whilst sub contractors can earn huge revenues from working with the big names in construction, it is imperative to remember that larger companies are well-known for keeping smaller sub contractors waiting for payment and often go as far as stipulating unfair contractual terms such as how the business is financed
This article was originally published on Buildingtalk on 6 Apr 2005 at 8.00am (UK)
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Andrew Dixon, head of construction finance at Bibby Financial Services said: "In many construction projects, sub contractors pay out huge amounts for raw materials and often have to deal with stage payments, resulting in cash flow headaches".
"Furthermore, the nature of the work itself is extremely labour intensive and contractual staff have to be paid long before the business receives payment".
"However, with the industry set to grow by three per cent a year in 2007 and 2008**, sub contractors need to make sure they overcome these obstacles and work closely with large contractors, who understand how they work".
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"" In order to help sub contractors avoid the potential pitfalls and reap the benefits associated with working for large construction firms, Bibby Financial Services gives the following advice:.
1.
Get real - determine accurate project costs and don't cut margins too fine, material and labour costs are still increasing and it is foolish to think that you can claw back income on maintenance and servicing work.
Be realistic about the cost of projects, remember it's profit not turnover that matters.
2.
Keep clear documentation - make sure you send accurate invoices, statements or applications for payment to the right person, at the right place, at the right time and state clearly the date payment is due, this will increase your chances of getting paid.
Any correspondence should be logged, even telephone conversations.
3.
Invoice on time - do not delay sending invoices and applications for payment out.
If you don't do this you can't expect to be paid on time.
Payment may not be received for 30, 60 or even 90 days after the invoice date - don't make it even worse by not sending your invoices out as soon as you can.
4.
Keep your options open - remember that banking solutions are not the only option for funding your business.
Because of the contractual nature of construction companies' debt, banks will often offer a low lending ratio and will require security such as a director's home.
Other independent providers will often be more flexible and open-minded and many do not require the securitisation commitments of the banks.
5.
Have the right attitude - don't be embarrassed about discussing money.
Remember, if you've kept your part of the deal you have the right to be paid.
Be polite but firm.
6.
Take stock - plan ahead and don't hold too much stock.
Holding stock costs money.
Investigate the possibility of more frequent deliveries from suppliers so that stock levels can be kept to a minimum 7.
Get yourself protected.
Use bad debt protection to ensure your firm is not adversely affected should one of your customers go out of business".
"These tips may seem obvious but it's surprising how often basic financial principles are overlooked".
"The construction industry is going from strength to strength and by finding the right financial solution to fund these exciting new projects sub contractors will be set for success, "said Dixon.
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